It is a hot, humid morning in Victoria Harbour. Christoph Wellendorff is the only passenger in a suit and tie on the green and white ferry that travels from Kowloon to Hong Kong. The jeweler and businessman is on his way to what he considers to be an existential business appointment.
He is going to meet Karim Azar, a Lebanese-British businessman and the director of Hong Kong’s International Finance Center Mall. The 75,000 square meter (807,000 square feet) luxury shopping center is home to 220 stores. It is rumored to make a whopping $3 billion (€2.7 billion) in revenue every year.
Mr. Wellendorff has secured one of the smallest boutiques in the mall, but at least it’s in the IFC and belongs to the Wellendorffs. At least for now.
The IFC is the most important mall in Hong Kong, which is the most important financial hub in China, which is the most important country for international business in Asia. The country has a population of 1.37 billion and covers an area that is more than twice as large as the entire European Union. An economic giant and a promising financial market, even for Christoph Wellendorff, the small German jeweler from Pforzheim in the south-western German state of Baden Württemberg.
The Wellendorff boutique in the IFC Mall is only 55 square meters and each square meter costs between €1,500-€2,000 per month.
In Pforzheim, a street is named after Mr. Wellendorff’s grandfather. Here in China, Mr. Wellendorff stands alone. His insignificance is humbling, as is China, and this gigantic mall with everything from Apple to Zara, including Tiffany, Givenchy and Ferragamo.
Few luxury brands can afford not to be represented at the IFC. And Wellendorff jewelry is an able competitor in this luxury landscape. The family business, now in its fourth generation, is one of the few tenants that is still doing well at the IFC. Many are struggling to break even.
Because the Japanese yen and the euro are currently weak, Chinese consumers now prefer to buy from Japan or Europe directly.
Mr. Azar has told his tenants to lower their prices. Even luxury giants like Prada and Chanel acquiesced and adjusted their prices accordingly. Gucci is also suffering, Etro is in crisis and Escada was forced to close. Mr. Azar has let business take its course. Slowly but surely, however, the industry’s giants have made demands of their own. Multibillion empires like Richemont and LVMH agree: the rent is too high.
Here at the IFC, the global economy shows itself from its quick and dirty side. With the Chinese stock market crash and recurring bad news about China’s economic slowdown, the mood has become even more tense. In the midst of all this, Mr. Wellendorff is scheduled to meet with Mr. Azar.
The Wellendorff boutique in the IFC Mall is only 55 square meters and each square meter costs between €1,500-€2,000 per month. That’s much more than average rents in prime locations in Germany.
Wellendorff’s Hong Kong location needs to sell a lot of necklaces and rings to break even, especially since staff costs are similar to those in Germany. In China, a good jewelry seller earns significantly more than a university professor. And although business is going well for the Wellendorffs in China, it’s not certain that Mr. Azar will extend the jewelry store’s lease.
“Almost a third of our stores are reassigned every year,” Mr. Azar says with pride. “The competition keeps everyone on their toes.”
He cares little for the fact that the Wellendorffs' entire business future in Asia depends on maintaining their right to the IFC boutique. At the end of the day, the mall’s managing director really doesn’t care how proud Pforzheim locals may or may not be of their 123-year-old jeweler.
Back in Germany, at the northern edge of the Black Forest, the Wellendorffs have set up a small jewelry museum in their company headquarters. The exhibition includes treasures from ancient graves as well as an Etruscan dagger that dates back to 600 BC. Pforzheim has always been the German jewelry hub. It is thus all the more impressive that only the Wellendorff family was able to make an international name for itself.
In 1893, the goldsmith Ernst Alexander Wellendorff settled in Baden-Baden. Shortly thereafter, he began making jewelry for the Russian tsars and British royalty. Long before globalization became a buzzword, some early German companies practiced it with ease.
When his son Hans Peter was released from Russian captivity after World War II, he returned to what remained of Pforzheim and his business. In 1960, he decided to no longer work anonymously for other jewelers, but created jewelry in his own name instead - an idea that defines the business today.
At first, Mr. Wellendorff’s decision presented a lot of problems for his young company. Wellendorff lost half of its customers and many local jewelers felt threatened by the jeweler’s potential competition.
On the other hand, it was finally able to create its own brand in Pforzheim and began pouring its soul into gold. In 1977, the jeweler invented its signature Wellendorff necklace, an 18-karat, 18-inch gold handwoven necklace that requires about 175 yards of gold wire. In 1993, it brought its famous colorful rings made of cold-enamel to market. Four years later, it introduced its first ring of the year for Hong Kong, in light of the territory’s transfer from Britain to China.
Christoph Wellendorff joined the company in 1990 and his younger brother Georg joined four years later. Christoph is a trained goldsmith but has now become the face of the company for marketing and sales. Georg is a trained lithographer. He is quieter and more analytical than his older brother, and runs the factory at home.
Christoph has always been drawn to China and, usually, he goes alone on business alone. Usually, Georg leaves business trips to his brother. But today he will join his older brother to meet with Mr. Azar.
Christoph came to China for the first time in 1992 as part of a business delegation from the Baden-Württemberg state government. He returned one year later with his wife for their honeymoon. Even then, he thought that his company should expand their business to the Asian market.
At first, his family thought that Asia was just too far away, too unpredictable. Seventeen years later, they launched their first international shop in Hong Kong. Also in 2010, they set up shop in San Francisco. In 2011 they opened in Beijing, in 2012 in Vienna. In 2014, they added a second store on Hong Kong’s mainland, and also expanded to Luxembourg, Las Vegas and Tokyo. In total, they now have 15 boutiques around the world.
Wellendorff intends to keep expanding in North America, Central Europe and Asia, its three key regions. Today, the company makes half of its estimated €80 million annual sales abroad.
But even when business is going well, there are always risks in the international market. Currencies fluctuate, economies fall into crises, local managers fail and political frameworks are inconsistent. When business is booming in one part of the world, sales dip somewhere else.
By setting up high import duties and capital taxation, the Beijing government is bullying foreign companies out of the Chinese luxury market. As a result, luxury companies are losing substantial amounts of money when an expensively imported item fails to be sold and has to make its way back to Europe. Beijing is also trying hard to reduce the market’s rampant corruption. Every now and then, political heads and top managers end up in jail.
Wellendorff wants to be global, not run-of-the-mill. Listed companies, on the other hand, are under pressure to be well-known, increase sales and please their investors.
In particular, Western watchmakers have suffered as a result of Beijing’s new anti-corruption policies. As it turns out, watches were the bribe of choice in the luxury landscape. The jewelry market, however, did not suffer significant losses, Mr. Wellendorff says. Jewelry, he explains, is given out of love and not to acquire clients or signatures.
Two years ago, Mr. Wellendorff took his two children on one of his business trips to China. He wanted to show them that there are places beyond the western world of McDonald’s and Disneyland. “In China, you can learn humility,” he says. And in turn you grow as a person by gaining invaluable experiences.
When the Wellendorff brothers arrive in their Hong Kong boutique, the store’s general manager was there to meet them. She is Chinese but got her high school diploma in Amsterdam, studied in France and speaks perfect German. As global as can be.
She tells them that a customer spent €60,000 at Wellendorff yesterday. “A Hong Kong Chinese?” Mr. Wellendorff asks. “No, someone from the mainland. With his wife.” “Good. How long did it take?” “Thirty minutes,” she says, “he had already become familiar with our products in Beijing.” The Hong Kong locals have little patience with China’s wave of new money. Many complain that they are too loud, too uneducated. Mr. Wellendorff defends his new clientele. He is fascinated by how quickly they learn.
The Wellendorffs would have no chance to keep up with the four big global luxury conglomerates. Richemont owns Cartier, IWC and Montblanc. Swatch has Blancpain, Omega, and Longines. Kering runs Gucci, Puma and Bottega Veneta. And LVMH is in charge of Louis Vuitton, Donna Karan and Bulgari, to name just a few. “They are all about size, yield and quarterly reports,” says Mr. Wellendorff.
He enjoys watching the big luxury boys from afar. “After all, they sit on a gigantic financial lever,” he says. “They have bargaining power, huge cash reserves and access to the best manufacturing facilities in the world. But the good thing is that they don’t care about us. They see us as a likeable, small player for whom they would maybe make a takeover bid.”
Every now and then, companies express interest in the Wellendorff brand. But the Wellendorffs would rather cease to exist as a company than give up on their family business. As an independent small business, they know their skills and limitations, as well as their goals. "We want to grow in quality rather than in size,” says Christoph Wellendorff. “Otherwise the question will arise: what is sustainable, and when does it turn into greed?”
And so the Wellendorffs don’t want to increase volume but rather focus on quality and processing instead. If successful, this will also lead to a rise in prices. Hugo Boss is currently pursuing a similar goal. It remains unclear, however, if the German designer will be able to reinvent itself as a premium brand - despite its annual turnover of €2.5 billion, recently acquired top designers and major brand campaigns.
The Pforzheim jewelers, on the other hand, have made it happen.
“Depth rather than breadth” is Christoph Wellendorff’s strategy. For this reason, the company no longer attends jewelry fairs. It is also sure that it will never having an online store. Instead, all of the pieces that go out to the 100 jewelers around the world selling Wellendorff are handpicked. The Pforzheim manufacturers stand behind these “genuine values.” They even have them printed on their slick, white business cards.
Some time ago, the Wellendorffs had their brand and position in the luxury landscape professionally examined. The examiners found that even though Wellendorff was an attractive brand, the company was not particularly well known. A reality the family could live with.
Wellendorff wants to be global, not run-of-the-mill. Listed companies, on the other hand, are under pressure to be well-known, increase sales and please their investors. A race the Wellendorffs are not interested in joining.
A Wellendorff collection consists of five rings, two amulets, one pair of earrings, two necklaces and two bracelets. One collection per year, nothing more. “Luxury also has something to do with slowness,” says Mr. Wellendorff.
In Pforzheim, the Wellendorffs do not write quarterly reports. Instead, they write so-called “Generation Reports.” Their 80-year-old father already finished his report. It’s bound as a book and reads like a memoir in numbers. Christoph Wellendorff has already started his book, but he fears that it won’t be worth very much if Wellendorff is forced to close up shop at the IFC mall.
Back in Hong Kong, the Wellendorffs finally get down to business with Mr. Azar. The managing director takes them for a Japanese lunch at the mall’s Four Seasons. He is pleased with Wellendorff’s sales. A good sign. Wellendorff, Mr. Azar says, is one of his “best performers.” The brothers are optimistic. But, he says, he would like to see lower prices.
Prices for Wellendorff rings start at €3,000. Mr. Azar would like to see them somewhere between €500 and €1,000. The brothers try to explain that the mall will benefit from Wellendorff’s value. They could and would sell at a loss. Furthermore, having a product “Made in Germany” has its price. Currently, their most expensive item is a necklace priced at half a million euros.
And so they keep sitting, small talking and eating their sushi. For Mr. Azar, this meeting is about one row in his balance sheet. For the German brothers, it’s about their future. Finally, Mr. Azar agrees to extend the lease.
At the end of this day, the brothers feel Hong Kong’s energy pulse through them. They intend to open another store in Shanghai later this year. They are all alone in China and really not that big. But for a short moment, they feel like giants.
Frank Sieren has been living in Beijing since 1994 and has been a Handelsblatt correspondent since 2010. Thomas Tuma is a deputy editor in chief at Handelsblatt. To contact the authors: [email protected], [email protected]